Money Mondays: The Retirement Landscape – My RA

Mellody is president of Ariel investments, a Chicago-based money management firm that serves individual investors and retirement plans through its no-load mutual funds and separate accounts. Additionally, she is a regular financial contributor and analyst for CBS news and cbs.com.

Tom: Today we are continuing our series on retirement, but we have a new development.

Mellody: We do have a new development on the retirement landscape, as of last week! On November 4, the department of treasury announced that they would be rolling out the new myra program to the entire population that is eligible to participate in the program, after a year-long trial period. My RA is a type of Roth IRA account that invests in the treasury securities fund. Anyone who earns less than $131,000 if single, or $193,000 if married can participate in the program.

Melody: The program was initially announced in the president’s 2014 state of the union speech, and it is designed to help more Americans, particularly those who do not currently have access to retirement accounts, build a nest egg for their later years. After all, around half of all workers don’t get a 401(k) or pension at work, and most part-time workers and many people employed at small businesses are out of luck. As the president pointed out in his speech, “today, most workers don’t have a pension. A social security check often isn’t enough on its own. And while the stock market has doubled over the last five years, that doesn’t help folks who don’t have 401ks.” the My RA program aims to address this gap, and allow more people to save.

Tom: How does this new program work

Mellody: The beauty of this program is its simple, straightforward design. First, it is free to participate – there are no fees or charges – and there is no risk of losing money, because it is invested in treasuries. Additionally, there is no minimum balance. You can contribute your money in $5 dollar increments if you like. For information on signing up, you can go to myra.gov.

Tom: How do you contribute?

Mellody: You are offered three simple ways you can put money into your account. You can transfer after-tax dollars from your paycheck directly into your My RA if your employer offers direct deposit, you can link it to your checking or savings account and schedule one-time or regularcontributions, or you can direct some or all of your federal tax refund to the account. You won’t be surprised to hear me say that it is always best to have money be direct deposited to your new My RA, and have your tax refunds go there too.

In terms of your contributions, there are a few rule. You can only contribute up to $5,500 per year, or $6,500 a year if you’re age 50 and older. On top of that, you are only allowed to contribute $15,000 to your My RA over your lifetime, and you cannot have it open for longer than 30 years. At that point — whichever comes first — you must transfer your money to a private sector Roth ira. Either way, the money you save will be safe and secure until you need it.

Tom: Are there any drawbacks?

Mellody: The big drawback is the earning potential of the accounts. Because the money is invested in the very conservative treasury securities fund, it offers lower returns than many other options. Last year, money invested in TSF accounts had returns of 2.3%, and 3.2% over the last decade. While that is better than your average savings account, it is significantly lower than the return on investments in equities have produced over the same time periods. However, the benefits far outweigh the downsides for people looking make the first step towards their retirement, and to do it without risk.

Tom: Any final things we should know?

Mellody: Yep, just remember that the program has the same rules for withdrawals as IRAs – not that any of our listeners would think of taking money out of their retirement accounts! You will be penalized if you take out any of the earnings from interest before turning 59½, just like a regular Roth IRA, though there are some exceptions for homebuyers or educational costs.

Tom: Thanks for joining us this morning, Mellody. We are looking forward to hearing more about retirement next week!